Basis: NOK action as ultra EUR/USD flows ebb

Odin 1 26 Jan 2021
A good start to 2021 in new issuance and basis is ebbing, allowing Scandi supply to creep to the fore. RBC looks at three key 5y sectors.

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  • NOK action as ultra EUR/USD flows ebb

  • Around the world in five years with RBC

  • Flow

  • New issues


    NOK action as ultra EUR/USD flows ebb

    A good start to 2021 in new issuance and related cross-currency basis flows is ebbing right now as supply is digested and, in EUR, the EU’s SURE programme sucks out some of the oxygen usually inhaled by SSAs there at this time of year.


    USD supply has kept just about ticking over, but today only ADB with a 5y benchmark, Rentenbank, with a $250m 6y and OKB, with a 5y USD global in the pipe, appear to be nailed-on basis swappers as the start of the week is dominated by the upcoming FOMC and by busy digestion of supply by investors.


    In EUR/USD basis the standout areas of flow today are 5y (at around -11.875bps) and 6y (at -13.25bps) reflecting the supply  In cable there is activity in 6y either side of -3.75bps which swappers see as inexorably linked to a Dec 2026 Asian Development Bank deal in GBP today. The 6y cable has traded from -3.625 to -3.875bps and back so far today.


    One notably quieter part of the basis playground is the ultralong end (25y to 50y) of EUR/USD which saw a lot of interest from CSA-type flows in the first half of this month (see Total Derivatives). They were paying the long end of EUR/USD reportedly as part of transition plans to new RFRs, but as one basis swapper said this morning, “the transition flows appear to have been more of a feature at the start of the year, they are absent now.”  


    Similarly a lot of the heat has come out of the rest of the EUR/USD market for now, with the above basis swapper saying that “it’s quiet today and it looks like it might be a quiet week. I’m very sorry to say.”


    Elsewhere, with sunset in Oslo today extending to 4:15pm (already a 65-minute improvement on mid-winter), the long awakening from Winter is officially underway. In the basis swap market this has been celebrated by a rejuvenation of NOK-denominated bond issuance.


    Not all of this has been public (unlike the NOK1bn 5y from NIB and the NOK 100m 5y deal from LBBW yesterday or the NOK 500m 3y FRN from VW on Wednesday, or the NOK 2.1bn 4y FRN tap by MuniFinance and the NOK 500m 10y from BNPP the week before, plus NOK repacks). But between public and private issuance there has been a revival in NOK that defines the ongoing homogenization of new issuance markets into a USD/EUR carve up, with KfW today pricing a NOK5bn tap of its 2023 Green bond. 


    One seasoned basis swapper said today that “NOK issuance has come back driven by investor demand. For a lot of investors up there it looks good to buy NOK assets.”


    The basis swapper said that the 5y sector has been busiest with the 5y NOK/USD basis falling from -4.5bps in mid-Jan to -5.5bps today and NOK/EUR dropping from +8.5bps just before Christmas to a January low of 5.5bps a week or so ago before recovering to 6.5bps today.


    Pension funds are cited as driving NOK demand which raises the likelihood of active interest from the Government Pension Fund of Norway (aka the Oil Fund), which with over $1trn in assets currently owns 1.4% of all global equities and invests a maximum 30% of its assets in fixed income.


    Looking at the current state of play the above basis swapper said that “NOK looks good on a basis level and in terms of yield” so it is possible the NOK market may enjoy a fruitful Spring.


    Elsewhere in Scandinavia, SEK issuance has also awoken somewhat, with recent deals including a SEK 1.5bn 7y offering from the Asian Development Bank at swaps +1bp via Swedbank and a BNPP SEK 250m 6y NC5 at STIBOR +100bps via Danske. Which only leaves to say, ‘come on DKK, where in the name of Odin are you?’



    Around the world in five years with RBC

    Noting that January is a very active month in the SSA primary sector and that this year has been no exception. Strategists at the Canadian bank note in its latest look at the cross-currency basis market noting that EUR/USD 5y “has been moving higher (tightening) over the past several months, with 5y rallying from -21 in July to currently -11.625.” It said from “From a credit perspective, it is marginally favorable for European issuers to tap the USD markets and swap the deal back to EUR. This has been supportive of EURUSD basis, particularly in the 3-7yr part of the curve where $SSA issuance is most prevalent.”


    However, it said that as “Most Tier 1 SSA issuers tapped the USD market in early January, so this driver may subside. With EURUSD basis now at elevated levels, we are seeing corporate and financial names take advantage by issuing in EUR and swapping back to USD or GBP. This could provide resistance for further EURUSD tightening in the near-term.”


    And in the long end, it highlighted that “In addition to new issue flows, we have recently seen paying interest in the long-end EURUSD from gamma hedgers. This has resulted in a fairly aggressive steepening of the 10s30s curve over the past week.”


    Over in cable RBC said that “GBPUSD has seen more movement than EURUSD over the past 3 months due to higher volumes of GBP issuance, attractive RV opportunities for fast money to receive the basis and also fears through 2020 regarding a No Deal Brexit – although this risk has now passed... While we see scope for further widening (moving lower) driven by primary issuance, we are fast approaching a point where the arbitrage will favour USD issuance over GBP for a range of issuers. Similar to EURUSD we expect the abundance of reserves in the system to keep the short end anchored around these levels.”


    And looking at specific flows it says that recently, when cable basis widens it has translated into a flattening of 2s5s, given the short-end is currently quite stable. When 2s5s GBPUSD basis has flattened to 0, we typically see strong fast money interest to pay 2y3y type forward structures.”


    Finally, in RBC’s home stomping ground of CAD/USD, it notes that moves there have “been reasonably volatile in the last 2 months with year-end funding pressures felt particularly acutely. 3m Basis reached -60 in the scramble for USD funding in mid-December but has since widened out to -34 currently. 5y has broadly followed that trend, moving left (more negative) throughout December and rising as USD funding pressures in late Dec. However the curve between 3m and 5y has been steadily flattening.”


    Looking those drivers, it says “Year-end demand for USD funding pushed basis left globally in December, but as the new year rolled it’s brought sizeable issuance abroad. Provinces particularly have lots of cash to raise this year because of record deficits from COVID-19 related support programs and we’ve seen large trades priced from Ontario in the 5y sector so far. Against that SSA issuance has been sizable in Canada. With the bid in basis, our high swap and reasonably tight credit spreads SSAs have printed 2.5b 7y so far in 2021.”



    On the SDR today EUR/USD flows were reported in:

    • 3y at -10.875bps twice

    • 5y at -12 and twice at -11.865bps

    • 6y at -13.25bps

    • 7y8y at -0.875bps

    • 8y at -15.375bps

    • 9y at -15.9375bps

    • 12y at -16.625bps

    • 15y at -16.625bps


    Elsewhere on the SDR today flows were reported in:

    • 1y cable at -4bps

    • 6y at -3.875 and -3.625bps


    New issues:

    USD New Issues:

    • The Asian Development Bank is close to launching a 5y USD Global via BofA, Citi, HSBC and MS.


    • Rentenbank is close to pricing a $250m tap of its 1.75%, Jan 2027 bond at swaps +6bps via Commerz (B&D) and TorDom.


    • Austria’s OKB plans a benchmark USD 5y at swaps +5bps. Leads BofA, Citi, Deutsche and Goldman. Aa1/AA+. Price talk mid swaps +7bps. 


    • Armenia is calling potential investors ahead of a planned 10y benchmark USD bond issue.


    • South Korea’s Woori Bank priced a $550m 5y Sustainable Bond issue. Leads BNPP, BofA, Citi (B&D), HSBC, SocGen and Standard Chartered. A1/A. +45bps.


    • British Columbia on Friday priced a $1.75bn, Jan 2031, 1.3% bond at swaps +21bps via BMO, RBC, Scotia and TorDom.


    • The Government of Hong Kong will call investors from Monday ahead of a planned USD Green Global MTN offering via BNPP, Citi, ICBC (Asia), JPM and Standard Chartered.


    EUR New Issues:

    • Japan Finance Organisation for Municipalities (JFM) is close to selling a é500m, 7y Green Bond at swaps +26bps via Barclays (B&D), BNPP, GS and Mizuho.


    GBP New Issues:

    • The Asian Development Bank plans a GBP benchmark Dec 2026 bond at gilts +23bps via Barclays, Citi and TorDom (B&D).


    • Dexia yesterday priced a larger-than-expected £750m, short 6y (Dec 2026) gilts +32bps bond via Barclays (B&D), HSBC and NatWest.


    • JBIC plans a GBP 5y or long 5y bond after meeting investors on Jan 25. Leads are Barclays, HSBC and JPM. 


    DKK/SEK/NOK New Issues:

    • The Nordic Investment Bank yesterday priced a NOK 1bn tap of its Jan 2026 NIBOR +150bps FRN via Swedbank.


    • KfW today priced a NOK5bn tap of its 1.25% 2023 Green bond via Danske.  


    • LBBW yesterday priced a NOK 100m, Feb 2026, 0.85% bond at par via LBBW.


    JPY New Issues:

    • SNCF SA last week  issued a JPY20bn 10-year EMTN in a deal led by RBC. It pays a semi-annual 0.10% coupon and matures Jul 28, 2031


    AUD New Issues:

    • Inter-American Development Bank sold a AUD300m 7.5-year Kangaroo Bond through joint leads JPMorgan, Nomura and Toronto Dominion Bank. It pays a semi-annual 1% coupon and matures Aug 4, 2028. Pricing was set at ACGBs + 27.05bps.